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Op-Ed  |  June 13, 2022

The E-Commerce Revolution Is Transforming Global Trade And Benefitting The U.S. Economy

by Dan Ikenson

This article was posted on Forbes on June 13, 2022.

Technology, innovation and entrepreneurship have been integral to reducing the cost of business and bringing the world’s producers and consumers closer together. In the 1970s and 1980s, the proliferation of standardized cargo containers revolutionized global shipping, dramatically reducing transportation and distribution costs and opening the door to international commerce on a grand scale. In the 1990s and 2000s, widespread adoption of the internet, mobile phones, and related technologies slashed communications and information costs, enabling the emergence of more nimble and efficient methods of production.

The U.S. economy is now just beginning to reap the dividends of the latest supply-side revolution. Massive investments in e-commerce design and infrastructure in the 2010s and 2020s are helping reduce barriers to market entry for businesses of all sizes. This is making markets larger and creating greater scope for specialization, economies of scale, and collaboration. The resulting productivity gains are driving down business costs, keeping consumer prices in check, and encouraging investment and growth.

E-commerce has transformed the global retail industry. In 2020, over two billion people purchased goods or services online. Global e-commerce retail sales surpassed $4.2 trillion in 2020, accounting for 17.8% of all global retail sales – up from 7.4% in 2015. That share is projected to be 21% in 2022 and 24.5% by 2025.

“Technology, innovation and entrepreneurship have been integral to reducing the cost of business and bringing the world’s producers and consumers closer together.”

Much like Walmart, Target, and other mega-retailers were able to use their scale to purchase in bulk and deliver the benefits of lower prices to U.S. shoppers, e-commerce platforms are providing businesses with ready access to billions of the world’s consumers. Online “marketplaces,” including Amazon’s and eBay’s, account for the largest share of e-commerce retail purchases worldwide. But Taobao and Tmall – both operated by Alibaba Group – are also major online marketplaces, with U.S. entities benefiting considerably from the global reach of those platforms.

According to a new study from NDP Analytics, U.S. brands generated direct revenues of $40 billion from their sales to Chinese consumers on Alibaba’s e-commerce platforms in 2020. Those sales added an additional $39 billion to U.S. GDP, generated $21 billion in wages for U.S. workers, and supported 256,000 U.S. jobs.

To give those figures some context, in 2016 the U.S. International Trade Commission estimated the Trans-Pacific Partnership (TPP) – a trade agreement to reduce tariffs and other administrative barriers to trade – would increase GDP by $42.7 billion and create 128,000 new jobs by 15 years after the agreement first took effect. So, as a tool to facilitate cross-border commerce by removing hurdles and reducing business costs for American companies, Alibaba’s e-commerce infrastructure is punching well above its weight.

Over 95% of the world’s customers live outside of the United States. But the traditional high costs and uncertainty associated with reaching those customers and achieving sustained success in overseas markets have deterred most U.S. businesses from even trying. Designing, producing, packaging, and shipping goods from factories to ports and then across oceans is daunting enough. But once goods clear foreign customs, they confront a whole new maze of rules, regulations, inland distribution conundrums, and cultural and language barriers.

The costs of building a business around a foreign customer base, understanding foreign customs and regulatory protocols, payments, marketing trends, logistics and otherwise operating successfully abroad are daunting, especially for smaller businesses. For many years, governments at all levels have been trying to boost the fortunes of small and medium sized companies, noting that current commercial behemoths were once small entities. Despite incentives and programs and agencies devoted to promoting the success of small and medium enterprises, large U.S. businesses still account for more than 80 percent of U.S. exports.

If the hundreds of thousands of U.S. businesses that do not yet sell abroad are going to try to reach those 95% of global consumers, they will need to be more comfortable exporting. That means greater transparency and predictability regarding the costs confronting them when they enter and hope to succeed in foreign markets. By providing virtual business infrastructure and ready access to customers who are increasingly comfortable shopping online, e-commerce platforms enable businesses to leapfrog many of those uncertainties.

Alibaba is in the vanguard of designing, building, and operating e-commerce infrastructure, while keeping business costs down. Its suite of e-commerce platforms is intended to accommodate a wide variety of entities, including large global brands, mid-sized companies, small firms, and individual artisans, who sell consumer staples, fresh food, consumer electronics, luxury goods, and much more.

Lowering the costs of selling into foreign markets encourages more businesses to export. Those sales generate positive direct and indirect effects on the U.S. economy, through their impact on companies along the supply chain and in communities across the United States. The benefits to U.S. industry and job creation have been substantial.

As was the case with the advent of container shipping and the internet in previous decades, the confluence of technology, innovation, and entrepreneurship is once again opening up new opportunities for U.S. businesses to reach billions of the world’s consumers at a much lower cost and with greater likelihood of long-term success. Alibaba’s pioneering efforts are part of this rich heritage.